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Catch-Up Options for Public School Employees

Financial Advisor Tim Hayes AIF®, CRPS®, AWMA®, CFS®, APMA®

The 403(b) 15-year retirement catch-up allows some public-school employees with 15 years of service to contribute an extra $3,000 a year for five years.. One problem with this catch-up is any amounts contributed over $19,500 are credited first against the 15-year rule. So, a teacher who is age fifty or over could use up the fifteen-year catch-up without knowing it

The 457 plan has a larger catch-up. It allows eligible employees to contribute $37,000 a year for three years before they reach their “normal retirement date.

  • Your school system provides you with a list of 403(b) companies.
  • The 457 is different. The city/town usually provides one company.
  • Both give you a broad range of investment options.
  • You decide what plan to use and the amount that you want to save before taxes from your paycheck
  • In 2020, the basic limit is $19,500 and an educator age fifty or over can save an extra $6,500.
  • The IRS, however, allows educators to contribute $19,500 to a 403(b) and a 457.*
  • The ability to put in the most pre-tax into two retirement plans is unique to the 403(b) and 457.

Read more: Social Security and a Pension From MTRS

Notes:

  • School systems should think about eliminating the 15-year catch-up from their 403(b) plan. Especially if there is no system in place to track if the catch-up contribution is from it or the age fifty.
  • Any employee who is saving the greatest in a 403(b) and wants to save more money can usually open up a 457 plan.
  • Remember, if eligible, you can use the 457 catch-ups with the 403(b) plus the age fifty catch-up making it an excellent option for any educator who wants to defer sick buybacks.

 

Tim Hayes

Tim Hayes

Investment Adviser Representative

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